Homestead – More than a Tax Break

Florida has a long history of worrying about families. There are many laws which protect family assets from creditors. Most focus on head of household. Homestead protection is even broader.

Homestead property gets special tax treatment. The tax treatment is not automatic and is obtained by making an application with the county Property Appraiser. Homestead status caps an increase in the tax assessed value to lesser of 3% or increase in the cost-of-living index and the property gets two $25,000 discounts on the assessed value as well.

Homestead tax benefits are well known. They are so well known that many pretend to be Florida residents so they can get the property tax break. A lot of those folks think that if they claim they reside in Florida for at least 180 days, they qualify. But homestead is a bit more complicated. To qualify as Florida homestead property, the property must be owned by a natural person who intends to make the property his or her permanent residence and meet size limitations set by Florida’s Constitution.

A lesser but significant benefit of property qualifying as homestead is exemption from most creditor claims. Florida’s Constitution protects homestead from collection efforts of almost all creditors except those which have been voluntarily placed against the property, for improvements or repairs, or collection of taxes or assessments. There is no cap on the dollar amount of protection as there is in some other states.

The genesis of all this protection from creditors appears to be a focus on making sure that families are protected and with that protection, protected families will hopefully not be placed in need of governmental subsidies. Part of this protection for families extends specifically to spouses, even when the spouse is not on title to the homestead property.

Spousal homestead rights do not extend to dissolution of marriage but are intended to keep the family home in the family after the owner dies. Let’s take a look at a survivor spouse’s rights in homestead at death of a spouse.

If a married couple owns a homestead as husband and wife, homestead passes by operation of law to the survivor when the first one dies. That holds true throughout the country. But homestead property is not always owned by the husband and wife jointly. In some cases, it is only owned by one of the spouses. That is particularly true when a couple gets married and live in a home that was owned before the marriage by one of them. One might think a spouse owning homestead could devise the property as the spouse deems appropriate. But Florida law limits that right.

Long ago, Florida decided that it was not a good thing to allow someone to devise homestead and cut out the spouse and kids. Statutes now limit the right of the owner to devise homestead.

Homestead can always be devised to one’s spouse. The limits are on devises to others. If the decedent is survived by a spouse and one or more descendants, the spouse gets a life estate in the homestead with a vested remainder to the descendants. That means the spouse owns the property for his or her life after which it goes to descendants of the first spouse to die. Descendants do not include children of the surviving spouse unless they are also children of the first spouse to die.

Over time, the right of a surviving spouse to a life estate proved problematic. It was almost impossible to sell a life estate. What would someone pay for property that they would only own until the surviving spouse died, especially since the date of the death would be unknown? Life estates are almost unsellable, which let a surviving spouse in a position of not being able to liquidate his or her interest and use the money for something else.

The legislature addresses that problem by amending the statutes to allow a surviving spouse to elect a 50% ownership interest in the homestead as long as that election was made within six months after the first spouse’s death and while the surviving spouse was still alive. A timely election now allows a surviving spouse who owned half of the homestead. Allows a surviving spouse to sell half of the homestead.

Finding a buyer for half of the house could be tough but an owner of property that is not divisible can petition a court to sell the entire property and split the proceeds if the other owner is uncooperative. 

A spouse’s rights to homestead after death of a spouse can be waived. Florida has long allowed waiver but has required the waiver be in writing. Many homestead waivers are stand-alone documents. Some are included in prenuptial or postnuptial agreements. And Florida courts have agreed waiver can also be found when a spouse signs a deed by which the homestead is conveyed to the other spouse or to the other spouse’s trust.

There has been much litigation about whether a deed actually waives spousal homestead rights. The legislature addressed the issue in 2018 and adopted a statute providing language that could be included in a deed for spouse to waive spousal rights to homestead. The language is a safe harbor to avoid argument.

Florida cases confirming that a deed can waive spousal homestead rights do not address the statutory requirement that a spouse waiving homestead rights be provided a fair disclosure of the other spouse’s estate if the waiver is signed after marriage. The judges in those cases may have assumed the deed signing spouse was aware of the other spouse’s finances but the cases do not address that issue.

Florida homestead is complicated and is an area where good legal advice is important.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.